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Reviewing insurance now may pay off later

By HELEN HUNTLEY
Published April 17, 2005

[Times art]

If a hurricane damaged your home, how much of the tab would your homeowners insurance pick up?

This is a good time to find out.

If you're like most people, you probably don't have more than a vague idea about what your policy covers and what it doesn't. Even though premiums have continued to rise, policies have become more restrictive. Yours probably includes at least a few pages of exclusions and limitations. And if you haven't conducted a thorough policy review with your agent recently, you might be seriously underinsured.

"This is a perfect time to get your insurance policy out and and see what you have," said Don Griffin, vice president of the Property Casualty Insurers Association of America.

Your overall insurance limits are the first thing to check since those could come into play with a destructive storm. If you've had the same insurance company for years, the annual inflation adjustments to your coverage may not have kept pace with rising costs for new construction. In addition, the value placed on your house probably does not reflect home improvements if you never told your agent about them.

"A lot of times people redo a kitchen, redo bathrooms, put on a garage or even an addition and we don't hear about it," Griffin said.

It is particularly important to tell your agent if you have made improvements that would keep your home more secure in a hurricane. Some changes to roofs, doors and windows qualify for premium discounts. The Florida Department of Community Affairs maintains a Web site that can help you find out which improvements qualify for discounts (www.floridacommunitydevelopment.org/mitdb/)

If you are interested in making safety improvements, talk to your agent about which ones would be the best investment, said Lauren Cain, who heads consumer outreach for the Florida Department of Financial Services.

Ideally, you want a policy limit high enough to cover the cost of rebuilding your house on the same site, not including the value of the land. If you have a mortgage on your home, your lender may require you to carry replacement coverage for the full value of the house minus the land or for the amount of your mortgage, whichever is less. A lender cannot require you to carry more than replacement coverage.

He said consumers should pay particular attention to policy limits and exclusions.

"More and more companies are not covering peripheral buildings - your pool shed and extra garage," he said. "You might have to purchase additional coverage for it, but most of your pool screens you're not going to get coverage for."

Insurance policies also may limit or exclude coverage for a long list of other items, including boats, cars, aircraft, cash, guns, silverware, jewelry, furs, antiques, electronics, business equipment and records. If you want adequate coverage for those items, you'll probably need to buy extra coverage or a separate policy.

The biggest exclusion in homeowners policies is flood damage. If a hurricane brings a storm surge that floods your house, you won't be covered unless you have purchased separate flood insurance. Some policies also exclude certain other types of water damage, such as a sewer backup, unless you pay an extra premium.

"The best rule is: Don't assume anything is covered if it's not stated specifically," Cain said.

The best coverage is replacement value coverage for both buildings and personal property, but it costs more than coverage for the depreciated value of your property. You'll also want to check for what's known as "law and ordinance" coverage, which would pay the extra cost of rebuilding your damaged property in compliance with current building codes.

Even if you have replacement coverage, you will have out-of-pocket expenses for your deductible. When Florida is under hurricane watch or warning, a larger deductible applies for windstorm damage in affected areas. In most cases, the deductible is 2 percent of the policy value. That means a $2,000 deductible on a house insured for $100,000.

Deductibles for non-hurricane damage are usually $500 or $1,000. A $1,000 deductible, or even larger, reduces premiums and makes sense in an environment in which filing even small claims can result in your policy not being renewed.

The best way to prepare for high deductibles is to maintain an emergency reserve in a bank or credit union account or a money-market fund. Savings bonds that are at least a year old also can function as an emergency reserve since they can be cashed at any time.

Homeowners policies also offer liability coverage in addition to property coverage. That could be a factor following a storm if a friend or neighbor were injured on your property helping with cleanup. However, it is more likely to become an issue in other circumstances. Check your policy for limits or exclusions, especially if you own a dog or pet snake, have a swimming pool or own potentially dangerous items such as jet skis and off-road vehicles.

"You may not be able to get coverage on certain animals anywhere," Glover said.

Reviewing an insurance policy can be a daunting task. Insurance companies say you shouldn't feel shy about asking your agent to help you with it.

"If there's anything about the policy you don't understand, you should ask," said Kip Diggs, spokesman for State Farm Insurance. "Tap the knowledge and resources of the agent, going line by line if necessary so you know what coverages you have and don't have."

Building: Your house should be insured for at least 80 percent of its value, not including land. If you have other structures on your property, such as a detached garage or a screen enclosure, see if they are covered. Some companies will not insure screen enclosures.

Personal property: A rule of thumb is to have personal property insured for about half of your home's value, but you may need more if your furnishings are especially valuable. Lower limits typically apply to jewelry, electronics, guns and business equipment unless you opt for extra coverage.

Loss of use: This is a standard policy feature that covers extra costs if you have to move out of your house while damages are repaired.

2. IS YOUR COVERAGE REPLACEMENT COST OR ACTUAL CASH VALUE?

Replacement cost pays for a new roof if yours is blown away. Actual cash value deducts depreciation based on the age of your roof. For replacement coverage, your house generally must be insured for at least 80 percent of its value. Some policies are capped at your policy limits, while others offer "extended" replacement, which will pay 20 to 25 percent above those limits if needed. Even if you have replacement coverage on your house, your personal property may be insured for actual cash value. If you don't have replacement coverage, ask your agent how much more it would cost.

Most policies cover wind damage, including hurricane damage, but if you live in certain coastal areas, you may have to buy a separate wind damage policy from Citizens Property Insurance Corp. to get coverage. Policies typically exclude damages from flood, war, earthquakes and nuclear accidents. For flood coverage, you must buy a separate flood insurance policy.

4. WHAT ARE YOUR LIABILITY LIMITS?

How much would your policy pay if someone is injured on your property? Do you need more to protect your assets from court judgments in case you are sued for damages? Check for lower limits and exclusions for animal bites and injuries related to certain equipment such as trampolines, diving boards, watercraft and offroad vehicles.

5. HOW BIG IS YOUR DEDUCTIBLE?

Most policies have a $500 or $1,000 deductible for claims other than those related to hurricanes. When the National Hurricane Center declares a hurricane watch or warning in Florida, the deductible for windstorm claims increases to 2 percent of the insured value for most policies in affected areas. You could reduce your premium by increasing your deductible for nonhurricane claims.